Paul Anderson, Tribune column, 19 April 2002
LAST week’s launch of Labour Against the Euro caused barely a ripple on the political pond, and it’s not hard to see why: the usual Labour Eurosceptic suspects say the same old thing yet again. Hardly the thing to drive the Queen Mother’s funeral or Israel’s assault on the Palestine from the front page.
But the new campaign deserves more than what Ernie Bevin once described as “a complete ignoral”. In the current political climate there is a real danger that its fatuous, head-in-the-sand message will be taken up widely in the Labour Party — for no better reason than that it is opposed to the party leadership’s line.
The Labour sceptics rest their case on two main arguments: first, that there
are good economic reasons for Britain not to join the euro; and second, that joining the euro would be a “diversion” from the task of improving Britain’s
Their economic case against the euro in the short term boils down to the assertion that UK interest rates need to be higher than those in the euro-zone in order to keep a lid on inflation — one result of which is to make sterling’s exchange rate against the euro too high for British euro entry.
But what are we really talking about here? It’s not as if UK interest rates are 5 percentage points above the euro-zone’s, or that the UK is fighting off double-digit inflation, or that sterling is 25 per cent overvalued against the euro. The interest-rate difference between Britain and the euro-zone is less than a single percentage point, UK inflation has been hovering for years between 2 and 2.5 per cent, and the sterling devaluation required, according to just about every credible economist, is in the region of 5-10 per cent. Reducing UK interest rates to those of the euro-zone carries few inflationary risks and would go a long way to encouraging the small devaluation most economists think we need to enter the euro. With the economic cycles of the UK and the euro-zone are more in step now than at any time in the past 20 years, the truth is that we can join the euro pretty much when we want.
Aha, say the LATEites, but what about the “one-size-fits-all” interest rate policy if we join the euro-zone? And what about the European Central Bank’s limits on public spending, which would rule out Labour’s spending plans? Well, you get a single interest rate with any currency, and you cope with any regional imbalances with taxation and spending. It’s true that the Europe-wide mechanisms for this are inadequate at present — but, as every social democratic party inside the euro-zone argues, there is nothing to stop them being improved. As for the claim that the European Central Bank would outlaw Labour’s spending plans, sorry, it’s just complete cobblers.
The part of the LATE case that really annoys me, however, is the argument that joining the euro is somehow a “diversion” from Labour’s primary task of improving public services. It’s true that some members of this government are uncannily reminiscent of US President Gerald Ford, who was said to find simultaneously walking and chewing gum too much of an intellectual challenge. But the idea that it is beyond the government to organise a referendum campaign on the euro at the same time as spending more money on the National Health Service is ludicrous.
The fact is that the euro is utterly unavoidable and urgent. The government has no option but to make a decision inside the next two years, for the simple reason that it cannot assume that it will be in power for more than three terms (and even that assumption could turn out to be optimistic).
Of course, it might decide to stay out, but I doubt it. Even if it is not swayed by the best reasons for joining — that the euro is a massive step on the road to a democratic federal Europe characterised by a much more social model of capitalism than that of the US — it almost certainly will be by the experience of being increasingly excluded from influence in the European Union the longer it delays opting in.
Precisely when the government should declare for the euro and hold the referendum is of course a matter for dispute. It would be madness to hold a referendum if there were a serious chance of losing. But the opinion polls increasingly suggest that a referendum could be won this side of the next general election. Whether the government has the guts to risk it is another question, but the rewards of winning would be massive. A decisive yes vote would consign both the Tories and the Europhobe left to the proverbial dustbin of history — a mouth-watering prospect if ever there was one.